Attached files
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EX-31.2 - EXHIBIT 31.2 - LIBERTY BANCORP INC | a61773116ex31-2.htm |
EX-32 - EXHIBIT 32 - LIBERTY BANCORP INC | a61773116ex32.htm |
EX-31.1 - EXHIBIT 31.1 - LIBERTY BANCORP INC | a61773116ex31-1.htm |
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
X
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
quarterly period ended December 31,
2009
OR
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period
from
to
For
the transition period from
|
to
|
Commission
File Number: 000-51992
LIBERTY
BANCORP, INC.
(Exact
name of registrant as specified in its charter)
Missouri
|
20-4447023
|
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
|
incorporation
or organization)
|
16 West Franklin Street, Liberty,
Missouri
|
64068
|
||
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code (816)
781-4822
Not
applicable
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes X . No
.
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes
___. No ___.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company. See the definitions of “large accelerated filer”,
“accelerated filer”, and “smaller reporting company” in Rule 12b-2 of the
Exchange Act. (Check one): Large accelerated filer ___
Accelerated filer ____ Non-accelerated filer (Do not check if a smaller
reporting company.) ___ Smaller reporting company X.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes . No
X .
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class
|
Outstanding February 10,
2010
|
|
Common
Stock, par value $0.01 per share
|
3,600,261
|
LIBERTY BANCORP, INC.
FORM
10-Q
FOR THE
QUARTER ENDED DECEMBER 31, 2009
INDEX
PAGE
NO.
|
||
1
|
||
1
|
||
2
|
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3
|
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5
|
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6
|
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19 | ||
28
|
||
28
|
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29
|
||
29
|
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29
|
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29
|
||
30
|
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30
|
||
30
|
||
30
|
||
|
LIBERTY BANCORP, INC.
Item
1. Financial Statements
Consolidated
Balance Sheets
(Unaudited)
December
31,
|
September
30,
|
|||||||
Assets
|
2009
|
2009
|
||||||
Cash
and due from banks
|
$ | 12,457,298 | 26,512,327 | |||||
Federal
funds sold
|
25,324,000 | - | ||||||
Total
cash and cash equivalents
|
37,781,298 | 26,512,327 | ||||||
Securities
available for sale- taxable, at market value (amortized
cost
|
||||||||
of
$15,746,523 and $10,222,298, respectively)
|
15,991,967 | 10,849,552 | ||||||
Securities
available for sale - non-taxable, at market value
(amortized
|
||||||||
cost
of $9,734,337 and $9,765,909, respectively)
|
9,854,081 | 9,914,624 | ||||||
Mortgage-backed
securities - available for sale, at market value
|
||||||||
(amortized
cost of $7,361,814 and $8,822,806, respectively)
|
7,482,002 | 8,956,810 | ||||||
Stock
in Federal Home Loan Bank ("FHLB") of Des Moines
|
3,360,000 | 3,910,100 | ||||||
Loans
receivable, net of allowance for loan losses
|
||||||||
of
$4,002,403 and $3,536,837, respectively
|
299,194,625 | 302,246,097 | ||||||
Loans
held for sale
|
2,800,889 | 459,270 | ||||||
Premises
and equipment, net
|
12,581,175 | 12,702,627 | ||||||
Bank-owned
life insurance ("BOLI")
|
9,084,979 | 8,975,562 | ||||||
Foreclosed
real estate, net
|
2,030,232 | 2,822,423 | ||||||
Accrued
interest receivable
|
1,509,467 | 1,557,970 | ||||||
Goodwill
|
1,191,603 | 1,191,603 | ||||||
Core
deposit intangible, net
|
820,167 | 865,333 | ||||||
Other
assets
|
2,642,420 | 1,433,540 | ||||||
Total
assets
|
$ | 406,324,905 | 392,397,838 | |||||
Liabilities
and Stockholders' Equity
|
||||||||
Deposits
|
$ | 288,321,508 | 276,203,274 | |||||
Accrued
interest payable
|
244,354 | 307,911 | ||||||
Advances
from FHLB of Des Moines
|
65,115,860 | 69,140,862 | ||||||
Securities
sold under agreement to repurchase
|
591,753 | 547,019 | ||||||
Advances
from borrowers for taxes and insurance
|
106,642 | 1,079,264 | ||||||
Other
liabilities
|
7,566,401 | 1,334,817 | ||||||
Total
liabilities
|
361,946,518 | 348,613,147 | ||||||
Commitments
and contingencies
|
||||||||
Stockholders'
equity:
|
||||||||
Preferred
stock, $0.01 par value; 1,000,000 shares
|
||||||||
authorized;
shares issued and outstanding - none
|
- | - | ||||||
Common
stock, $0.01 par value; 20,000,000 shares authorized;
|
||||||||
4,761,712
shares issued
|
47,617 | 47,617 | ||||||
Treasury
stock, at cost, 1,151,902 shares and 1,139,837 shares
|
(11,236,747 | ) | (11,100,506 | ) | ||||
Additional
paid-in capital
|
32,670,310 | 32,600,040 | ||||||
Common
stock acquired by ESOP
|
(221,660 | ) | (268,805 | ) | ||||
Accumulated
other comprehensive earnings, net
|
337,168 | 640,636 | ||||||
Retained
earnings - substantially restricted
|
22,781,699 | 21,865,709 | ||||||
Total
stockholders' equity
|
44,378,387 | 43,784,691 | ||||||
Total
liabilities and stockholders' equity
|
$ | 406,324,905 | 392,397,838 |
See
accompanying notes to unaudited consolidated financial
statements.
1
LIBERTY BANCORP, INC.
(Unaudited)
Three
Months Ended
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Interest
income:
|
||||||||
Loans
receivable
|
$ | 4,768,587 | 4,308,606 | |||||
Mortgage-backed
securities
|
81,030 | 153,876 | ||||||
Securities
- taxable
|
88,142 | 190,940 | ||||||
Securities
- non-taxable
|
113,616 | 141,307 | ||||||
Other
interest-earning assets, net of service charges
|
(1,553 | ) | 6,089 | |||||
Total
interest income
|
5,049,822 | 4,800,818 | ||||||
Interest
expense:
|
||||||||
Deposits
|
983,884 | 1,464,136 | ||||||
Securities
sold under agreement to repurchase
|
4,343 | 9,000 | ||||||
Advances
from FHLB
|
407,770 | 426,259 | ||||||
Total
interest expense
|
1,395,997 | 1,899,395 | ||||||
Net
interest income
|
3,653,825 | 2,901,423 | ||||||
Provision
for loan losses
|
438,000 | 129,055 | ||||||
Net
interest income after
|
||||||||
provision
for loan losses
|
3,215,825 | 2,772,368 | ||||||
Noninterest
income:
|
||||||||
Loan
service charges
|
35,219 | 21,499 | ||||||
Gain
on sale of loans
|
157,973 | 20,453 | ||||||
Gain
on sale of securities available for sale
|
245,733 | 12,843 | ||||||
Change
in cash surrender value of BOLI
|
109,417 | 109,580 | ||||||
Deposit
account and other service charges
|
355,412 | 294,081 | ||||||
Total
noninterest income
|
903,754 | 458,456 | ||||||
Noninterest
expense:
|
||||||||
Compensation
and benefits
|
1,401,593 | 1,179,922 | ||||||
Occupancy
expense
|
202,904 | 184,354 | ||||||
Equipment
and data processing expense
|
317,742 | 283,430 | ||||||
Operations
from foreclosed real estate, net
|
44,422 | 175,681 | ||||||
FDIC
premium expense
|
85,295 | 62,000 | ||||||
Professional
and regulatory services
|
126,774 | 119,937 | ||||||
Advertising
|
131,301 | 66,939 | ||||||
Correspondent
banking charges
|
24,676 | 33,362 | ||||||
Supplies
|
34,687 | 58,107 | ||||||
Amortization
of core deposit intangible
|
45,167 | 34,666 | ||||||
Other
|
224,192 | 190,827 | ||||||
Total
noninterest expense
|
2,638,753 | 2,389,225 | ||||||
Earnings
before income taxes
|
1,480,826 | 841,599 | ||||||
Income
taxes
|
476,000 | 236,000 | ||||||
Net
earnings
|
$ | 1,004,826 | 605,599 | |||||
Basic
and diluted earnings per share
|
$ | 0.28 | 0.16 | |||||
Dividends
per share
|
$ | 0.025 | 0.025 |
See accompanying notes to
unaudited consolidated financial statements.
2
LIBERTY BANCORP, INC.
(Unaudited)
Three
Months Ended
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Net
earnings
|
$ | 1,004,826 | 605,599 | |||||
Other
comprehensive earnings:
|
||||||||
Reclassification
adjustment for gains (loss) in earnings, net of tax
|
||||||||
of
$(86,006) and $(4,495), respectively
|
(159,727 | ) | (8,348 | ) | ||||
Unrealized
gains (losses), net of tax of $(38,388) and
|
||||||||
$166,819,
respectively
|
(140,477 | ) | 317,815 | |||||
Amortization
of unrecognized gain, net on benefit plans
|
(3,264 | ) | (3,264 | ) | ||||
Comprehensive
earnings
|
$ | 701,358 | 911,802 |
See accompanying notes to
unaudited consolidated financial statements.
3
LIBERTY BANCORP, INC.
Consolidated
Statements of Cash Flows
(Unaudited)
Three
Months Ended
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
earnings
|
$ | 1,004,826 | 605,599 | |||||
Adjustments
to reconcile net earnings to net
|
||||||||
cash
provided by (used for) operating activities:
|
||||||||
Depreciation
expense
|
184,020 | 155,719 | ||||||
Amortization
of core deposit intangible
|
45,167 | 34,666 | ||||||
ESOP
expense
|
43,607 | 51,874 | ||||||
Incentive
Plan expense
|
73,807 | 75,874 | ||||||
Amortization
of premiums and (discounts) on investments, net
|
1,451 | 17,803 | ||||||
Amortization
of premium on loans
|
7,667 | 16,000 | ||||||
Amortization
of deferred loan fees, net
|
(3,728 | ) | (28,510 | ) | ||||
Provision
for loan losses
|
438,000 | 129,055 | ||||||
Loans
held for sale - originated
|
(8,074,306 | ) | (2,272,900 | ) | ||||
Loans
held for sale - proceeds from sale
|
5,890,660 | 1,719,072 | ||||||
(Gain)
loss on foreclosed real estate, net
|
(12,706 | ) | 121,942 | |||||
Gain
on sale of securities available for sale
|
(245,733 | ) | (12,843 | ) | ||||
Gain
on sale of loans
|
(157,973 | ) | (20,453 | ) | ||||
Increase
in cash surrender value of BOLI
|
(109,417 | ) | (109,580 | ) | ||||
Decrease
(increase) in:
|
||||||||
Accrued
interest receivable
|
48,503 | (48,256 | ) | |||||
Other
assets
|
(1,084,486 | ) | 386,270 | |||||
Increase
(decrease) in:
|
||||||||
Accrued
interest on deposits and other liabilities
|
6,005,944 | (301,026 | ) | |||||
Accrued
income taxes
|
158,819 | - | ||||||
Net
cash provided by (used for) operating activities
|
4,214,122 | 520,306 | ||||||
Cash
flows from investing activities:
|
||||||||
Net
change in loans receivable
|
2,609,533 | (12,865,605 | ) | |||||
Mortgage-backed
available for sale:
|
||||||||
Principal
collections
|
1,332,431 | 1,003,930 | ||||||
Proceeds
from maturities
|
128,833 | - | ||||||
Securities
available for sale:
|
||||||||
Principal
collections
|
26,166 | 59,221 | ||||||
Purchased
|
(19,999,800 | ) | - | |||||
Proceeds
from sales
|
4,724,990 | 2,937,611 | ||||||
Proceeds
from maturity or call
|
10,000,000 | 260,000 | ||||||
Proceeds
from foreclosed real estate, net
|
804,897 | 332,336 | ||||||
Purchase
of stock in FHLB of Des Moines
|
(172,100 | ) | (678,000 | ) | ||||
Redemption
of stock in FHLB of Des Moines
|
722,200 | 412,500 | ||||||
Purchase
of premises and equipment
|
(62,568 | ) | (255,039 | ) | ||||
Cash
paid in acquistion of KLT Bancshares, Inc., net
|
- | (1,041,494 | ) | |||||
Net
cash provided by (used for) investing activities
|
$ | 114,582 | (9,834,540 | ) | ||||
(Continued)
|
See accompanying notes to
unaudited consolidated financial statements.
4
LIBERTY BANCORP, INC.
(Unaudited)
(Continued)
|
||||||||
Three
Months Ended
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from financing activities:
|
||||||||
Net
increase (decrease) in deposits
|
$ | 12,118,234 | 12,743,955 | |||||
Increase
(decrease) in advances from
|
||||||||
borrowers
for taxes and insurance
|
(972,622 | ) | (834,867 | ) | ||||
Proceeds
from advances from the FHLB
|
13,000,000 | 277,000,000 | ||||||
Repayment
of advances from the FHLB
|
(17,025,002 | ) | (271,025,002 | ) | ||||
Securities
sold under agreement to repurchase:
|
||||||||
Proceeds
|
2,619,516 | 1,861,426 | ||||||
Repayments
|
(2,574,782 | ) | (1,825,979 | ) | ||||
Repurchase
of common stock
|
(136,241 | ) | (1,443,092 | ) | ||||
Cash
dividends
|
(88,836 | ) | (95,018 | ) | ||||
Net
cash provided by (used for)
|
||||||||
financing
activities
|
6,940,267 | 16,381,423 | ||||||
Net
increase (decrease) in cash and cash equivalents
|
11,268,971 | 7,067,189 | ||||||
Cash
and cash equivalents at beginning of period
|
26,512,327 | 8,084,603 | ||||||
Cash
and cash equivalents at end of period
|
$ | 37,781,298 | 15,151,792 | |||||
Supplemental
disclosures of cash flow information:
|
||||||||
Cash
paid (received) during the period for:
|
||||||||
Interest
on deposits
|
$ | 1,047,441 | 1,459,949 | |||||
Interest
on securities sold under agreement to repurchase
|
4,343 | 9,000 | ||||||
Interest
on advances from FHLB of Des Moines
|
408,214 | 413,258 | ||||||
Real
estate acquired in settlement of loans
|
- | 3,539,556 | ||||||
Loans
originated to finance the sale of foreclosed real estate
|
- | 302,500 | ||||||
Net
cash paid in acquisition of KLT Bancshares, Inc.:
|
||||||||
Cash
paid to Farley State Bank shareholders
|
$ | - | (4,500,000 | ) | ||||
Acquisition
costs paid
|
- | (128,631 | ) | |||||
Total
cash payments
|
- | (4,628,631 | ) | |||||
Cash
and cash equivalents acquired
|
- | 3,587,137 | ||||||
Net
cash paid in acquistion
|
$ | - | (1,041,494 | ) |
See accompanying notes to
unaudited consolidated financial statements.
5
LIBERTY BANCORP, INC.
(1) Basis of
Presentation
The
accompanying unaudited interim financial statements have been prepared in
accordance with U.S. generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments considered necessary for a fair presentation have
been included. Such adjustments were of a normal recurring
nature. The results of operations for the three-month period ended
December 31, 2009 are not necessarily indicative of the results that may be
expected for the year or any other interim period. For additional
information, refer to the consolidated financial statements and footnotes
thereto of the Company for the year ended September 30, 2009 contained in the
Company’s Annual Report on Form 10-K filed with the Securities Exchange
Commission (“SEC”) on December 22, 2009. Subsequent events have been
evaluated through February 12, 2010 which is the date the financial statements
were filed with the SEC.
In
preparing financial statements in conformity with U.S. generally accepted
accounting principles, management is required to make estimates and assumptions
that affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
income and expenses during the reporting period. Actual results could
differ significantly from those estimates. Material estimates that
are particularly susceptible to significant change in the near term relate to
determination of the allowance for loan losses and the fair values of financial
instruments.
(2) Organization
Liberty
Bancorp, Inc. (the “Company” or “Liberty Bancorp”) a Missouri corporation, was
formed on February 14, 2006 and became the holding company for BankLiberty
(formerly Liberty Savings Bank, F.S.B., and referred to herein as the “Bank”)
upon completion of the Bank’s conversion (the “Conversion”) from a mutual
holding company form to a stock holding company structure on July 21,
2006. A total of 2,807,383 shares of common stock were sold in the
stock offering at the price of $10.00 per share. In addition, a total
of 1,952,754 shares of common stock were issued to the minority shareholders of
the former Liberty Savings Bank, F.S.B. representing an exchange ratio of 3.5004
shares of Company common stock for each share of Liberty Savings Bank, F.S.B.
common stock. Fractional shares in the aggregate, or 36 shares, were
redeemed for cash. Total shares outstanding after the stock offering and the
exchange totaled 4,760,137 shares. Net proceeds of $25.6
million were raised in the stock offering, excluding $1.2 million which was
loaned by the Company to a trust for the Bank’s Employee Stock Ownership Plan
(the “ESOP”), enabling it to finance the purchase of 153,263 shares of common
stock in the offering and exchange. Direct offering costs totaled
approximately $1.3 million. In addition, as part of the second-step
conversion and dissolution of Liberty Savings Mutual Holding Company, the Bank
received $694,000 previously held by this entity.
(3) Business
Combination
On
November 7, 2008, the Company acquired KLT Bancshares, Inc., the parent company
of Farley State Bank (“the acquisition”). Shareholders of KLT Bancshares, Inc.
received total merger consideration of $4.5 million, consisting of entirely
cash. The Company incurred acquisition costs
of $251,000. The acquisition was accounted for using the
purchase method under Statement of Financial Accounting Standards FASB ASC
805-10-10, “Business Combinations.” Fair value adjustments on the
assets acquired and liabilities assumed are depreciated or amortized as
applicable, over the estimated useful lives of the related assets and
liabilities. The core deposit intangible of $1.1 million is amortized
over 10.2 years using the double declining balance method. The
Company recorded fair value accounting adjustments of $422,000, net of income
taxes of $247,000 and core deposit intangibles of $665,000, net of income taxes
of $391,000. Based upon Farley State Bank’s stockholders’ equity of
$2.5 million, goodwill amounted to approximately $1.2 million at November 7,
2008. The excess purchase price has been allocated to goodwill and
identifiable intangible assets in accordance with current accounting
literature. As a result of the acquisition, the Bank operates two
additional full-service offices which expanded its market area.
6
LIBERTY BANCORP, INC.
Notes
to Unaudited Consolidated Financial Statements
The following table summarizes the assets acquired and liabilities assumed at November 7, 2008, the date of acquisition:
Cash
and due from banks
|
$ | 1,353,137 | ||
Federal
funds sold
|
2,234,000 | |||
Securities
available for sale
|
9,658,286 | |||
Federal
Home Loan Bank stock
|
68,300 | |||
Loans,
net
|
20,743,173 | |||
Property
and equipment, net
|
2,775,127 | |||
Accrued
interest receivable
|
210,863 | |||
Goodwill
|
1,191,603 | |||
Core
deposit intangible
|
1,056,000 | |||
Other
assets
|
389,946 | |||
Total
assets acquired
|
39,680,435 | |||
Deposits
|
33,964,121 | |||
Accrued
interest payable
|
215,834 | |||
Advances
from borrowers for taxes and insurance
|
69,896 | |||
Other
liabilities
|
40,860 | |||
Deferred
tax liability
|
638,468 | |||
Total
liabilities assumed
|
34,929,179 | |||
Purchase
price, including acquisition costs
|
$ | 4,751,256 |
The
consolidated statement of earnings for the three months ended December 31, 2008
include the results of operations of the acquired entity from November 8, 2008
through December 31, 2008.
The
following pro forma information, including the effects of the purchase
accounting adjustments, summarizes the results of operations for the three
months ended December 31, 2009 and 2008 as though the acquisition had been
completed as of the beginning of each period.
Three
Months Ended
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Total
interest income
|
$ | 5,049,822 | 5,007,765 | |||||
Total
interest expense
|
(1,395,997 | ) | (1,962,985 | ) | ||||
Net
interest income
|
3,653,825 | 3,044,780 | ||||||
Provision
for loan losses
|
(438,000 | ) | (552,983 | ) | ||||
Total
noninterest income
|
903,754 | 472,844 | ||||||
Total
noninterest expense
|
(2,638,753 | ) | (2,614,338 | ) | ||||
Income
before income taxes
|
1,480,826 | 350,303 | ||||||
Income
taxes
|
(476,000 | ) | (149,158 | ) | ||||
Net
earnings
|
$ | 1,004,826 | 201,145 | |||||
Pro
forma basic and diluted earnings per share
|
$ | 0.28 | 0.05 |
7
LIBERTY BANCORP, INC.
Notes
to Unaudited Consolidated Financial Statements
The pro
forma results of operations do not purport to be indicative of the results that
would actually have been obtained had the acquisition occurred on the date
indicated or which may be obtained in the future.
(4) Earnings Per
Share
Following
is a summary of basic and diluted earnings per common share for the Company for
the three months ended December 31, 2009 and 2008:
Three
Months Ended
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Basic
earnings per share:
|
||||||||
Net
earnings
|
$ | 1,004,826 | 605,599 | |||||
Less
dividends paid:
|
||||||||
Common
stock
|
87,070 | 92,830 | ||||||
Participating
securities
|
1,766 | 2,188 | ||||||
Undistributed
earnings
|
$ | 915,990 | 510,581 | |||||
Weighted-average
basic shares
|
||||||||
outstanding
|
3,515,420 | 3,748,079 | ||||||
Add:
weighted-average participating
|
||||||||
securities
outstanding
|
70,640 | 87,520 | ||||||
Total
weighted-average basic shares
|
||||||||
and
participating securities
|
3,586,060 | 3,835,599 | ||||||
outstanding
|
||||||||
Distributed
earnings per share
|
$ | 0.02 | 0.03 | |||||
Undistributed
earnings per share
|
$ | 0.26 | 0.13 | |||||
Net
earnings per share
|
$ | 0.28 | 0.16 | |||||
Diluted
earnings per share:
|
||||||||
Undistributed
earnings
|
$ | 915,990 | 510,581 | |||||
Total
weighted-average basic shares
|
||||||||
and
participating securities
|
||||||||
outstanding
|
3,586,060 | 3,835,599 | ||||||
Add:
Dilutive stock options
|
9,622 | 18,803 | ||||||
Total
weighted-average diluted
|
||||||||
shares
and participating securities
|
||||||||
outstanding
|
3,595,682 | 3,854,402 | ||||||
Distributed
earnings per share
|
$ | 0.02 | 0.03 | |||||
Undistributed
earnings per share
|
$ | 0.26 | 0.13 | |||||
Net
earnings per share
|
$ | 0.28 | 0.16 | |||||
Anti-dilutive
option shares
|
49,674 | 40,555 |
8
LIBERTY BANCORP, INC.
Notes
to Unaudited Consolidated Financial
Statements
(5) Retirement
Benefits
The
components of the net periodic cost for postretirement medical benefits are
summarized as follows:
Three
Months Ended
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Service
cost
|
$ | 1,671 | 1,671 | |||||
Interest
cost
|
3,678 | 3,678 | ||||||
Amortization
of transition obligation
|
3,134 | 3,134 | ||||||
Amortization
of prior service cost
|
(2,416 | ) | (2,416 | ) | ||||
Amortization
of actuarial gain
|
(5,342 | ) | (5,342 | ) | ||||
Net
periodic cost
|
$ | 725 | 725 |
Directors’ retirement plan expense was
$5,349 for the three month periods ended December 31, 2009 and
2008. The expense consisted primarily of interest
cost.
(6) Stock
Options
As
authorized by the Company’s 2003 Incentive Equity and Deferred Compensation Plan
(the “2003 Plan”), the Board of Directors granted 78,760 options to non-employee
directors and 96,260 options to certain officers and employees during fiscal
2004. The Plan authorizes the award of up to 258,064 shares of common
stock, subject to restrictions, to be issued to directors, officers and
employees of the Bank. The Plan provides for the grant of stock
options, stock appreciation rights, restricted stock and unrestricted
stock. Options expire ten years from the date of the
grant. Stock options to directors were fully vested on the grant date
of June 16, 2004. Options granted to the Bank’s CEO are vested over
three years and three months and options granted to certain other officers and
employees are vested over a five-year period. On January 27, 2005 the
Board of Directors granted an additional 38,504 options to certain officers and
employees. Options granted to the CEO are vested over a period of
three years and eight months and options granted to certain officers and
employees are vested over a five-year period. On November 23, 2005
the Board of Directors granted an additional 42,440 options to directors and
officers. Options granted to the board, CEO, and certain officers,
were vested over a ten-month period.
In
connection with the completion of the Conversion in July 2006, the Company
assumed the 2003 Plan and all outstanding options and shares were adjusted based
upon the 3.5004 exchange ratio. The exercise prices were adjusted to
reflect the proportional change in values that resulted from the
exchange.
As
authorized by the Liberty Bancorp, Inc. 2007 Equity Incentive Plan (the “2007
Plan”), the Board of Directors granted 25,150 options to non-employee directors
and 65,500 options to certain officers and employees on February 27,
2007. In addition, the Board of Directors granted 5,000 options to
one employee on April 1, 2009. The 2007 Plan authorizes the award of
up to 100,691 options to purchase shares of common stock, subject to
restrictions, to directors, officers and employees of the
Bank. The Plan provides for the grant of stock options, stock
appreciation rights, restricted stock and unrestricted
stock. Options expire ten years from the date of the
grant. All 95,650 options granted are vested over a five-year
period.
9
LIBERTY BANCORP, INC.
Notes
to Unaudited Consolidated Financial
Statements
Under the
measurement provisions of FASB ASC 718-10-30 and FASB ASC 718-10-35,
“Compensation – Stock Compensation,” compensation expense is recognized based on
the fair value of unvested stock awards at the implementation date and new
awards granted thereafter, which includes restricted stock and stock options, at
the grant date and is recognized on a straight-line basis over the requisite
service period.
Stock
option compensation expense is as follows:
Three
Months Ended
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Pretax
|
$ | 10,465 | 14,227 | |||||
After
tax
|
9,695 | 13,466 | ||||||
Basic
and diluted earnings per share
|
$ | 0.00 | 0.00 |
At
December 31, 2009, the total unrecognized compensation expense related to
nonvested stock options was approximately $94,000 and is expected to be
recognized over the weighted-average period of 2.61 years.
A summary
of the Company’s stock option activity under the Plan for the three months ended
December 31, 2009 is as follows:
Weighted-
|
||||||||||||||||
Average
|
||||||||||||||||
Weighted-
|
Remaining
|
|||||||||||||||
Average
|
Contractual
|
Aggregate
|
||||||||||||||
Number
|
Exercise
|
Term
in
|
Intrinsic
|
|||||||||||||
of
Shares
|
Price
|
Years
|
Value
|
|||||||||||||
Outstanding
at October 1, 2009
|
326,488 | $ | 8.37 | 5.78 | $ | 105,303 | ||||||||||
Granted
|
- | - | - | - | ||||||||||||
Exercised
|
- | - | - | - | ||||||||||||
Expired
|
- | - | - | - | ||||||||||||
Forfeited
|
- | - | - | - | ||||||||||||
Outstanding
at December 31, 2009
|
326,488 | 8.37 | 5.53 | 105,303 | ||||||||||||
Exercisable
at December 31, 2009
|
264,321 | 7.82 | 5.13 | 101,653 | ||||||||||||
Vested
and expected to vest at
|
||||||||||||||||
December
31, 2009
|
264,321 | $ | 7.82 | 5.13 | $ | 101,653 |
Restricted
Stock Awards
On
February 27, 2007, as authorized by the 2007 Plan, the Board of Directors
granted 31,400 restricted stock awards to non-employee directors and 78,000
awards to certain officers and employees and on April 1, 2009 the Board of
Directors granted 5,000 awards to one employee. The Plan authorized
the award of up to 125,649 shares of common stock, which were repurchased by a
trust to fund the restricted stock awards. All awards are
vested over a five-year period. A summary of the Company’s
restricted stock compensation expense is as follows:
10
LIBERTY BANCORP, INC.
Notes
to Unaudited Consolidated Financial
Statements
Three
Months Ended
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Restricted
Stock Compensation Expense
|
$ | 63,342 | 61,647 |
At
December 31, 2009, the total unrecognized expense was $563,000 and is expected
to be recognized over the weighted-average period of 2.25 years.
A summary
of the Company’s nonvested restricted stock award activity for the three months
ended December 31, 2009 is as follows:
Number
|
Weighted-
|
|||||||
of
|
Average
|
|||||||
Nonvested
|
Grant
Date
|
|||||||
Shares
|
Fair
Value
|
|||||||
Nonvested
at October 1, 2009
|
70,640 | $ | 11.03 | |||||
Granted
|
- | - | ||||||
Vested
|
- | - | ||||||
Forfeited
|
- | - | ||||||
Nonvested
at December 31, 2009
|
70,640 | $ | 11.03 |
(7) Securities
Securities
are summarized as follows:
December
31, 2009
|
||||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Market
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
Available
for sale - debt securities:
|
||||||||||||||||
U.S.
Treasury obligations
|
$ | 6,500,000 | - | - | 6,500,000 | |||||||||||
Federal
agency obligations
|
8,974,533 | 325,467 | (18,825 | ) | 9,281,175 | |||||||||||
State
and municipal obligations
|
9,734,337 | 293,927 | (174,183 | ) | 9,854,081 | |||||||||||
Agency
mortgage-backed securities
|
7,361,814 | 121,203 | (1,015 | ) | 7,482,002 | |||||||||||
32,570,684 | 740,597 | (194,023 | ) | 33,117,258 | ||||||||||||
Available
for sale - equity securities
|
271,990 | - | (61,198 | ) | 210,792 | |||||||||||
$ | 32,842,674 | 740,597 | (255,221 | ) | 33,328,050 | |||||||||||
Weighted-average
rate
|
3.15 | % |
11
LIBERTY BANCORP, INC.
Notes
to Unaudited Consolidated Financial Statements
September
30, 2009
|
||||||||||||||||
Gross
|
Gross
|
|||||||||||||||
Amortized
|
Unrealized
|
Unrealized
|
Market
|
|||||||||||||
Cost
|
Gains
|
Losses
|
Value
|
|||||||||||||
Available
for sale - debt securities:
|
||||||||||||||||
Federal
agency obligations
|
$ | 9,950,308 | 600,055 | - | 10,550,363 | |||||||||||
State
and municipal obligations
|
9,765,909 | 348,672 | (199,957 | ) | 9,914,624 | |||||||||||
Agency
mortgage-backed securities
|
8,822,806 | 134,812 | (808 | ) | 8,956,810 | |||||||||||
28,539,023 | 1,083,539 | (200,765 | ) | 29,421,797 | ||||||||||||
Available
for sale - equity securities
|
271,990 | 27,199 | - | 299,189 | ||||||||||||
$ | 28,811,013 | 1,110,738 | (200,765 | ) | 29,720,986 | |||||||||||
Weighted-average
rate
|
4.62 | % |
Securities
having a continuous unrealized loss position at December 31, 2009 are summarized
as follows:
Less
than 12 Months
|
12
Months or Longer
|
Total
|
||||||||||||||||||||||
Market
|
Unrealized
|
Market
|
Unrealized
|
Market
|
Unrealized
|
|||||||||||||||||||
Value
|
Loss
|
Value
|
Loss
|
Value
|
Loss
|
|||||||||||||||||||
Available
for sale- debt securities:
|
||||||||||||||||||||||||
Federal
agency obligations
|
$ | 1,981,175 | (18,825 | ) | - | - | 1,981,175 | (18,825 | ) | |||||||||||||||
State
and municipal obligations
|
- | - | 3,402,683 | (174,183 | ) | 3,402,683 | (174,183 | ) | ||||||||||||||||
Agency
mortgage-backed securities
|
- | - | 862,106 | (1,015 | ) | 862,106 | (1,015 | ) | ||||||||||||||||
Available
for sale- equity securities
|
- | - | 210,792 | (61,198 | ) | 210,792 | (61,198 | ) | ||||||||||||||||
$ | 1,981,175 | (18,825 | ) | 4,475,581 | (236,396 | ) | 6,456,756 | (255,221 | ) |
Federal Agency Obligations (2
issues). The unrealized losses on the Company’s federal agency
obligations were caused primarily by changes in interest rates and not credit
quality. Management of the Company does not intend to sell the
securities and it is not more likely than not that the Company will be required
to sell the securities before recovery of their amortized cost basis, which may
be upon maturity. Accordingly, the Company did not consider the
unrealized losses on those securities to be other-than-temporarily impaired
credit related losses at December 31, 2009.
State and Municipal
Obligations (6 issues). The
unrealized losses on the Company’s state and municipal obligations were caused
primarily by changes in interest rates and not credit quality. One
state and municipal obligation had an unrealized loss of $166,000 and
represented approximately 95% of the total unrealized loss on such
securities. Management of the Company does not intend to sell the
securities and it is not more likely than not that the Company will be required
to sell the securities before recovery of their amortized cost basis, which may
be upon maturity. Accordingly, the Company did not consider the
unrealized losses on those securities to be other-than-temporarily impaired
credit related losses at December 31, 2009.
Five state
and municipal obligations amounting to $6.0 million had a credit rating of Baa1
(investment grade) or better. One state and municipal obligation of
$2.6 million was not rated.
Mortgage-backed Securities (4
issues). The unrealized losses on the Company’s
mortgage-backed securities and agency collateralized mortgage obligation were
caused primarily by changes in interest rates and not credit
quality. Management of the Company does not intend to sell the
securities and it is not more likely than not that the Company will be required
to sell the securities before recovery of their amortized cost basis, which may
be upon maturity. Accordingly, the Company did not consider the
unrealized losses on those securities to be other-than-temporarily impaired
credit related losses at December 31, 2009.
12
LIBERTY BANCORP, INC.
Notes
to Unaudited Consolidated Financial Statements
Equity Security (1
issue). The unrealized loss was caused by general market
conditions of the banking industry, which has been relatively out of favor and
resulting lack of liquidity in the market. The Company has the
ability and intent to hold this investment until a recovery of fair
value. Accordingly, the Company does not consider the remaining
investment in the equity security to be other-than-temporarily impaired at
December 31, 2009.
Maturities
of debt securities at December 31, 2009 are summarized as follows:
Available
for Sale
|
||||||||
Amortized
|
Market
|
|||||||
Cost
|
Value
|
|||||||
Due
within one year
|
$ | 10,250,026 | 10,257,022 | |||||
Due
after one through five years
|
7,580,270 | 7,990,821 | ||||||
Due
after five through ten years
|
2,901,369 | 3,026,691 | ||||||
Due
after ten years
|
4,477,205 | 4,360,722 | ||||||
25,208,870 | 25,635,256 | |||||||
Agency
mortgage-backed securities
|
7,361,814 | 7,482,002 | ||||||
$ | 32,570,684 | 33,117,258 |
At
December 31, 2009, securities with a carrying value of $6,084,611 are callable
at the discretion of the issuer prior to the maturity
date. Securities in the amount of $23,172,610 were pledged to secure
certain deposits at December 31, 2009.
Gross
proceeds, gross realized gains and gross realized losses from sales of available
for sale securities were $4,724,990, $245,733 and $0, respectively, for the
three months ended December 31, 2009. Gross proceeds, gross realized gains and
gross realized losses from the sales of available for sale securities were
$2,937,611, $16,925 and $4,082, respectively, for the three months ended
December 31, 2008.
(8) Goodwill and Core Deposit
Intangible, Net
Goodwill
was recognized in connection with the acquisition of KLT Bancshares, Inc., the
parent company of Farley State Bank, in November 2008. Under FASB ASC
350, “Intangibles - Goodwill and Other,” goodwill is tested for impairment
annually or more frequently, if necessary, utilizing a two-step
methodology.
The first
step requires that the Company compare the fair value of a reporting unit with
its carrying amount. If the fair value of the reporting unit exceeds
the carrying value, goodwill is not impaired. If the carrying value
exceeds the fair value of the reporting unit, the second step is performed to
determine the amount of impairment, if any. The second step compares
the implied value of the reporting unit’s goodwill with the carrying amount of
such goodwill. The implied value of goodwill is the excess of the
fair value of the reporting unit over the aggregate fair values of the
individual assets, liabilities and identifiable assets as if the reporting unit
had been acquired in a business combination and the fair value of the reporting
unit was the price paid to acquire the reporting unit.
At
September 30, 2009, management determined that the Bank is the reporting unit
for purposes of evaluating goodwill. Under the first step, the fair
value of the reporting unit was determined using recent deal metrics obtained
from comparable banks from an independent third party, including deal value to
total assets, deal value to tangible book value, deal value to last twelve
months net earnings and a control premium. After weighting each
valuation approach, the fair value of the Bank was determined to exceed the
carrying amount. As a result, goodwill was not impaired.
13
LIBERTY BANCORP, INC.
Notes
to Unaudited Consolidated Financial
Statements
The gross
carrying value and accumulated amortization of the core deposit intangible is
presented below:
December
31, 2009
|
September
30, 2009
|
|||||||
Core
deposit intangible
|
$ | 1,056,000 | 1,056,000 | |||||
Accumulated
amortization
|
(235,833 | ) | (190,667 | ) | ||||
$ | 820,167 | 865,333 |
The core
deposit intangible is tested for impairment whenever events or changes in
circumstances indicate the carrying amount may not be recoverable.
Amortization
expense on core deposit intangible for the three months ended December 31, 2009
and 2008 was $45,167 and $34,666, respectively.
Estimated
amortization expense on core deposit intangible for the next five years is as
follows:
Nine
months ended September 30, 2010
|
$ | 125,000 | ||
Year
ended September 30, 2011
|
137,000 | |||
Year
ended September 30, 2012
|
110,000 | |||
Year
ended September 30, 2013
|
89,000 | |||
Year
ended September 30, 2014
|
71,000 | |||
Year
ended September 30, 2015
|
68,000 |
(9) Fair Value Measurements and
Financial Instruments
Fair
Value Measurements
Effective
October 1, 2008, the Company adopted the provisions of FASB ASC 820-10, “Fair
Value Measurements,” for financial assets and liabilities. FASB ASC
820-10 defines fair value as the price that would be received to sell an asset
or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The fair value hierarchy
prioritizes the assumptions that market participants would use in pricing the
assets or liabilities (the “inputs”) into three broad levels.
The fair
value hierarchy gives the highest priority (Level 1) to quoted prices in active
markets for identical assets and liabilities and the lowest priority (Level 3)
to unobservable inputs in which little, if any, market activity exists,
requiring entities to develop their own assumptions and data.
Level 2
inputs are inputs other than quoted prices included within Level 1 that are
observable for the asset or liability, either directly or
indirectly. These inputs include quoted prices for similar assets or
liabilities in active markets, quoted prices for identical or similar assets or
liabilities in market areas that are not active, inputs other than quoted prices
that are observable for the asset or liability (such as interest rates,
volatilities, prepayment speeds, credit risks and default rates) or inputs that
are derived principally from or corroborated by observable market data by
correlation or other means.
14
LIBERTY BANCORP, INC.
Notes
to Unaudited Consolidated Financial
Statements
Valuation
Techniques
Available
for sale securities are carried at fair value utilizing Level 1, Level 2 and
Level 3 inputs. For U.S. Treasury obligations and equity securities,
the Company obtains market quotes.
For Level
2 debt securities, the Company obtains fair value measurements from an
independent pricing service. Level 2 debt securities include Federal
agency obligations, state and municipal obligations, mortgage-backed securities
and collateralized mortgage obligations. The fair value measurements
consider observable data that may include dealer quotes, live trading levels,
trade execution data, cash flows, market consensus prepayment speeds, market
spreads, credit information and the U.S. Treasury yield curve.
The fair
value of Level 3 debt securities are determined by the appraisal of the
underlying collateral, discounted cash flow analysis, and other
internally developed estimates that incorporate market-based
assumptions.
Impaired
loans are carried at fair value utilizing Level 3 inputs, consisting of
appraisals of underlying collateral or discounted cash flow
analysis. The Company considers a loan to be impaired under FASB ASC
310-10-15 when, based on current information and events, it is probable that the
Company will be unable to collect all amounts due according to the contractual
terms of the loan agreement on a timely basis. Impairment losses are
recognized through an increase in the allowance for loan losses and provision
for loan losses, included in earnings for the period. The types of loans for
which impairment under FASB ASC 310-10-15 is measured include nonaccrual income
property loans (excluding those loans included in the homogenous portfolio which
are collectively reviewed for impairment), large, nonaccrual single-family loans
and troubled debt restructurings. Valuation allowances are
established for impaired loans under FASB ASC 310-10-15 for the difference
between the loan amount and the fair value of collateral and estimated selling
costs.
Mortgage
loans originated and intended for sale in the secondary market are carried at
the lower of cost or estimated market value in the aggregate, utilizing Level 2
inputs as determined based on expected proceeds from outstanding commitments
from investors.
15
LIBERTY BANCORP, INC.
Notes
to Unaudited Consolidated Financial
Statements
Assets
Measured at Fair Value on a Recurring Basis
The
following table summarizes financial assets measured at fair value on a
recurring basis at December 31, 2009, segregated by the level of the inputs
within the hierarchy used to measure fair value:
Fair
Value Measurements at Reporting Date Using
|
||||||||||||||||
Quoted
Prices in
|
Significant
|
|||||||||||||||
Active
Markets
|
Other
|
Significant
|
||||||||||||||
for
Identical
|
Observable
|
Unobservable
|
Total
|
|||||||||||||
Assets
|
Inputs
|
Inputs
|
Fair
|
|||||||||||||
Assets
|
(Level
1)
|
(Level
2)
|
(Level
3)
|
Value
|
||||||||||||
Available
for sale securities:
|
||||||||||||||||
Debt
securities:
|
||||||||||||||||
U.S.
Treasury obligations
|
$ | 6,500,000 | - | - | 6,500,000 | |||||||||||
Federal
agency obligations
|
- | 9,281,175 | - | 9,281,175 | ||||||||||||
State
and municipal obligations
|
- | 6,880,338 | 2,973,743 | 9,854,081 | ||||||||||||
Mortgage-backed
securities
|
- | 7,249,475 | - | 7,249,475 | ||||||||||||
Collateralized
mortgage obligations
|
- | 232,527 | - | 232,527 | ||||||||||||
Equity
securities
|
210,792 | - | - | 210,792 | ||||||||||||
$ | 6,710,792 | 23,643,515 | 2,973,743 | 33,328,050 |
Level 3
Assets Measured at Fair Value on a Recurring Basis Using Significant
Unobservable Inputs:
State
and Municipal
|
||||
Obligations
|
||||
Balance
at October 1, 2009
|
$ | 2,980,985 | ||
Total
unrealized gains included in other
|
||||
comprehensive
earnings
|
18,924 | |||
Purchases
|
- | |||
Principal
collections
|
(26,166 | ) | ||
Balance
at December 31, 2009
|
$ | 2,973,743 |
Assets
Measured at Fair Value on a Non-Recurring Basis
Assets
measured at fair value on a non-recurring basis at December 31, 2009 include
nonperforming loans of $5,388,171, which are collateral dependent utilizing
level 3 inputs and loans held for sale of $2,800,889, utilizing Level 2
inputs.
16
LIBERTY
BANCORP, INC.
Notes
to Unaudited Consolidated Financial
Statements
Following
is a summary of activity in the allowance for loan losses on nonperforming
loans:
December
31,
|
||||
2009
|
||||
Balance
at beginning of period
|
$ | 315,858 | ||
Charge-offs
|
- | |||
Recoveries
|
- | |||
Provision
charged to expense
|
384,273 | |||
Balance
at end of period
|
$ | 700,131 | ||
Financial
Instruments
The
carrying amounts and estimated fair values of the Company’s financial
instruments are summarized as follows:
December
31, 2009
|
September
30, 2009
|
|||||||||||||||
Carrying
|
Fair
|
Carrying
|
Fair
|
|||||||||||||
Amount
|
Value
|
Amount
|
Value
|
|||||||||||||
Non-trading
instruments
|
||||||||||||||||
and
nonderivatives:
|
||||||||||||||||
Cash
and cash equivalents
|
$ | 37,781,298 | 37,781,298 | 26,512,327 | 26,512,327 | |||||||||||
Securities
available for sale
|
25,846,048 | 25,846,048 | 20,764,176 | 20,764,176 | ||||||||||||
Stock
in FHLB of Des Moines
|
3,360,000 | 3,360,000 | 3,910,100 | 3,910,100 | ||||||||||||
Mortgage-backed
securities -
|
||||||||||||||||
available
for sale
|
7,482,002 | 7,482,002 | 8,956,810 | 8,956,810 | ||||||||||||
Loans
receivable, net
|
299,194,625 | 311,624,423 | 302,246,097 | 314,679,761 | ||||||||||||
Loans
held for sale
|
2,800,889 | 2,800,889 | 459,270 | 459,270 | ||||||||||||
Accrued
interest receivable
|
1,509,467 | 1,509,467 | 1,557,970 | 1,557,970 | ||||||||||||
Deposits
|
288,321,508 | 290,135,056 | 276,203,274 | 278,379,493 | ||||||||||||
Accrued
interest on deposits
|
244,354 | 244,354 | 307,911 | 307,911 | ||||||||||||
Advances
from FHLB
|
65,115,860 | 65,924,031 | 69,140,862 | 69,784,806 | ||||||||||||
Securities
sold under
|
||||||||||||||||
agreement
to repurchase
|
$ | 591,753 | 587,019 | 547,019 | 542,643 |
The following methods and assumptions were used in estimating the fair values of financial instruments, exclusive of securities which are discussed under “Valuation Techniques.”
Cash and
cash equivalents are valued at their carrying amounts due to the relatively
short period to maturity of the instruments.
The
carrying amounts of accrued interest receivable and payable approximate fair
value. Stock in FHLB of Des Moines is valued at cost, which
represents redemption value and approximates fair value.
Fair
values are computed for each loan category using market spreads to treasury
securities for similar existing loans in the portfolio and management's
estimates of prepayments.
Deposits
with no defined maturities, such as NOW accounts, passbook accounts and money
market deposit accounts, are valued at the amount payable on demand at the
reporting date. The fair value of certificates of deposit, advances from FHLB of
Des Moines and securities sold under agreement to repurchase is computed at
fixed spreads to treasury securities with similar maturities.
17
LIBERTY
BANCORP, INC.
Notes
to Unaudited Consolidated Financial Statements
Off-balance sheet assets include commitments to extend credit and unused lines of credit for which fair values were estimated based on interest rates and fees currently charged to enter into similar transactions and commitments to sell loans for which fair values were estimated based on current secondary market prices for commitments with similar terms. As a result of the short-term nature of the outstanding commitments, the fair values of fees on such commitments are considered immaterial to the Company’s financial condition.
(10) Income
Taxes
The
Company follows the provisions of Financial Accounting Standards Board
Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an
Interpretation of FASB Statement No. 109” (“FIN 48”). No adjustment
was recognized for uncertain tax positions. The Company is subject to
U.S. Federal income taxes, as well as Missouri income taxes and special
financial institution taxes. Tax years ending September 30, 2007
through September 30, 2009 remain open to examination by these
jurisdictions. The Company recognizes interest and penalties related
to tax positions in income tax expense. At December 31, 2009, there
was no accrual for uncertain tax positions or related interest.
18
LIBERTY
BANCORP, INC.
Item 2.
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
Management’s
discussion and analysis of the Company’s financial condition and results of
operations is intended to assist in understanding the financial condition and
results of operations of the Company. The information contained in
this section should be read in conjunction with the Financial Statements and
footnotes appearing in Part I, Item 1 of this report.
Forward-Looking
Statements
This
quarterly report contains forward-looking statements that are based on
assumptions and may describe future plans, strategies and expectations of
Liberty Bancorp and the Bank. These forward-looking statements are
generally identified by use of the words “believe,” “expect,” “intend,”
“anticipate,” “estimate,” “project” or similar expressions.
Liberty
Bancorp and the Bank’s ability to predict results or the actual effect of future
plans or strategies is inherently uncertain. Factors which could have
a material adverse effect on the operations of Liberty Bancorp and its
subsidiary include, but are not limited to, changes in interest rates, national
and regional economic conditions, legislative and regulatory changes, monetary
and fiscal policies of the U.S. Government, including policies of the U.S.
Treasury and the Federal Reserve Board, the quality and composition of the loan
or investment portfolios, demand for loan products, deposit flows, competition,
demand for financial services in Liberty Bancorp and the Bank’s market area,
changes in real estate market values in the Bank’s market area, changes in
relevant accounting principles and guidelines and inability of third party
service providers to perform.
These
risks and uncertainties should be considered in evaluating forward-looking
statements and undue reliance should not be placed on such
statements. Except as required by applicable law or regulation,
Liberty Bancorp does not undertake, and specifically disclaims any obligation,
to release publicly the result of any revisions that may be made to any
forward-looking statements to reflect events or circumstances after the date of
the statements or to reflect the occurrence of anticipated or unanticipated
events.
General
The Bank
is a community-oriented financial institution dedicated to serving the financial
service needs of consumers and businesses within its market area. We
attract deposits from the general public and use these funds to originate loans
secured by real estate located in our market area. Our real estate
loans include construction loans, commercial real estate loans and loans secured
by single-family or multi-family properties. To a lesser extent, we
originate consumer loans and commercial business loans. At December
31, 2009, we operated out of our main office in Liberty, Missouri and nine
additional retail banking facilities in the Kansas City metropolitan
area. The Federal Deposit Insurance Corporation insures the Bank’s savings
accounts up to the applicable legal limits. The Bank is a member of
the Federal Home Loan Bank System.
Critical Accounting
Policies
The
accounting and reporting policies were prepared in accordance with U.S.
generally accepted accounting principles (“US GAAP”) and general practices
accepted within the financial services industry. The preparation of
financial statements in conformity with US GAAP requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates. Management has identified the accounting policies
described below as those that, due to the judgments, estimates and assumptions
inherent in those policies, are critical to an understanding of our financial
statements and management’s discussion and analysis.
19
LIBERTY
BANCORP, INC.
Income
Recognition
We
recognize interest income by methods conforming to US GAAP that include general
accounting practices within the financial services industry. Interest
income on loans and investment securities is recognized by methods that result
in level rates of return on principal amounts outstanding, including yield
adjustments resulting from the amortization of loan costs and premiums on
investment securities and accretion of loan fees and discounts on investment
securities.
In the
event management believes collection of all or a portion of contractual interest
on a loan has become doubtful, which generally occurs after the loan is 90 days
past due, the accrual of interest is discontinued. In addition,
previously accrued interest deemed uncollectible that was recognized in income
is reversed. Interest received on nonaccrual loans is included in
income only if principal recovery is reasonably assured. A nonaccrual
loan is restored to accrual status when it is brought current or has performed
in accordance with contractual terms for a reasonable period of time, and the
collectibility of the total contractual principal and interest is no longer
doubtful.
Allowance
for Loan Losses
Valuation
allowances are established for impaired loans for the difference between the
loan amount and the fair value of collateral less estimated selling
costs. We consider a loan to be impaired when, based on current
information and events, it is probable that we will be unable to collect all
amounts due according to the contractual terms of the loan agreement on a timely
basis. The types of loans for which impairment is measured include
nonaccrual income property loans (excluding those loans included in the
homogenous portfolio which are collectively reviewed for impairment), large
nonaccrual single-family loans and troubled debt restructurings. Such
loans are generally placed on nonaccrual status at the point deemed
uncollectible. Impairment losses are recognized through an increase
in the allowance for loan losses. See also “Asset
Quality.”
Allowances
for loan losses are available to absorb losses incurred on loans and represent
additions charged to expense, less net charge-offs. The allowances
are evaluated on a regular basis by management and are based on management’s
periodic review of the collectibility of loans, in light of historical
experience, fair value of the underlying collateral, changes in the types and
mix of loans originated and prevailing economic conditions.
Securities
Impairment
We
periodically perform analyses to determine whether there has been an other-
than-temporary decline in the value of one or more of our
securities. Our available-for-sale securities portfolio is carried at
estimated fair value, with any unrealized gains or losses, net of taxes,
reported as accumulated other comprehensive earnings or loss in stockholders’
equity. We conduct a quarterly review and evaluation of the
securities portfolio to determine if the value of any security has declined
below its cost or amortized cost, and whether such decline is
other-than-temporary. If such decline is deemed other-than-temporary,
we adjust the cost basis of the security by writing down the security to
estimated fair market value through a charge to current period
operations.
Qualitative Disclosures of
Market Risk
Our
principal financial objective is to achieve long-term profitability while
reducing our exposure to fluctuating interest rates. We have an
exposure to interest rate risk. We have employed various strategies
intended to minimize the adverse effect of interest rate risk on future
operations by providing a better match between the interest rate sensitivity of
our assets and liabilities.
In
particular, our strategies are intended to stabilize net interest income for the
long-term by protecting our interest rate spread against increases in interest
rates. Such strategies include originating for portfolio
adjustable-rate and short-term loans with greater interest rate sensitivities
than long-term, fixed-rate residential mortgage loans. We sell
fixed-rate mortgage loans in the secondary market.
20
LIBERTY BANCORP,
INC.
Liquidity and Capital
Resources
Our
principal sources of funds are cash receipts from deposits, loan repayments by
borrowers, proceeds from maturing securities, advances from the Federal Home
Loan Bank (“FHLB”) and net earnings. We have an agreement with the
FHLB of Des Moines to provide cash advances, should we need additional funds for
loan originations or other purposes. As of December 31, 2009 we have
$25.2 million in additional borrowing capacity with the FHLB of Des
Moines.
Commitments
to originate loans are legally binding agreements to lend to our
customers. Letters of credit are conditional commitments issued by us
to guarantee the performance of the borrower to a third party. The
following table sets forth information regarding off-balance sheet financial
instruments as of December 31, 2009:
Fixed-Rate
|
Adjustable-Rate
|
|||||||
Off-balance
sheet financial instruments:
|
||||||||
Commitments
to originate loans
|
$ | 1,036,000 | 5,527,479 | |||||
Commitments
for unused lines of credit
|
$ | 356,518 | 12,518,857 | |||||
Commitments
for undisbursed loans
|
$ | 1,564,890 | 2,484,459 | |||||
Commitments
for letters of credit
|
$ | 219,253 | - |
Financial
Condition
Total
assets increased from $392.4 million at September 30, 2009 to $406.3 million at
December 31, 2009. Cash and cash equivalents increased by $11.3
million from September 30, 2009 to December 31, 2009.
Securities
increased from $20.8 million at September 30, 2009 to $25.8 million at December
31, 2009 due to purchases, partially offset by sales, maturities and
calls of securities. Some securities purchased were partially
required due to pledging requirements related to temporary calendar year-end
increases in deposits to governmental entities. Mortgage-backed
securities available for sale decreased from $9.0 million at September 30, 2009
to $7.5 million at December 31, 2009 due to principal repayments and
maturities. Stock in the Federal Home Loan Bank of Des Moines
decreased by $550,000 due to stock redemption requirements as a result of a
lower level of advances for the three months ended December 31,
2009. The moratorium on excess stock redemptions which was
implemented in December 2008 was terminated in December 2009.
Loans
receivable decreased by $3.1 million to $299.2 million at December 31, 2009 due
to a decrease in residential and non residential construction lending, partially
offset by an increase commercial and commercial real estate
lending. Loans held for sale increased $2.3 million due to an increase in
mortgage lending activity.
Premises
and equipment, net decreased $121,000 to $12.6 million at December 31, 2009
due to depreciation expense, partially offset by equipment
purchases. The cash surrender value of bank-owned life insurance
increased by $109,000 to $9.1 million as of December 31, 2009 as compared to
$9.0 million as of September 30, 2009.
Foreclosed
real estate, net at December 31, 2009 totaled $2.0 million, a decrease
of $792,000 from $2.8 million at September 30, 2009. At December 31, 2009,
foreclosed real estate, net consisted of four single-family lots, two
single-family homes, two residential development properties, two commercial lots
and one commercial retail property. No properties were acquired
through foreclosure for the three months ended December 31,
2009. Six single-family homes were sold during the three months
ended December 31, 2009.
21
LIBERTY BANCORP,
INC.
Goodwill totaling $1.2 million resulted from the acquisition of Farley State Bank. Core deposit intangible decreased $45,000 for the three months ended December 31, 2009 due to amortization expense. Other assets increased primarily due to the prepayment of FDIC insurance assessments in the amount of $1.4 million for the period January 1, 2010 through December 31, 2012.
Total
liabilities increased $13.3 million to $361.9 million at December 31, 2009
compared to $348.6 million at September 30, 2009.
Deposits
increased from $276.2 million at September 30, 2009 to $288.3 million at
December 31, 2009 due to an increase in long-term certificate accounts,
interest bearing and noninterest bearing checking, partially offset by a
decrease in short-term certificate accounts and brokered
certificates. The increase in interest bearing deposits of
$21.2 million is primarily attributable to higher year-end balances for
governmental accounts. Accrued interest interest payable decreased due to a
lower average rate, partially offset by a higher average balance.
Advances
from the FHLB decreased by $4.0 million to $65.1 million at December 31,
2009. FHLB advances were replaced with interest bearing and
noninterest bearing checking and long-term certificate accounts.
Advances
from borrowers for taxes and insurance decreased by $973,000 due to calendar
year-end payment of real estate taxes on behalf of borrowers.
Other
liabilities increased by $6.2 million primarily due to the purchase of one
security in the amount of $6.5 million during the quarter ended December 31,
2009 which was funded in January 2010, partially offset primarily by
payment of real estate taxes on branch buildings and foreclosed property in
December 2009, no accrued FDIC assessments as a result of the prepayment of
future premiums and a decrease in miscellaneous accrued
liabilities.
Stockholders’
equity increased $594,000 from $43.8 million at September 30, 2009 to
$44.4 million at December 31, 2009 due to net earnings of $1.0 million for
the three months ended December 31, 2009, amortization of ESOP and stock-based
incentive awards, partially offset by lower unrealized gains, net of taxes, on
investments, the repurchase of common stock totaling $136,000 and the
payment of dividends. During the three months ended December 31, 2009
and 2008, the Company paid cash dividends of $88,836 and $95,018,
respectively.
The Bank
is required to maintain certain minimum capital requirements under OTS
regulations. Failure by a savings institution to meet minimum capital
requirements can result in certain mandatory and possible discretionary actions
by regulators, which, if undertaken, could have a direct material effect on the
Bank's financial statements. Under the capital adequacy guidelines
and regulatory framework for prompt corrective action, the Bank must meet
specific capital guidelines that involve quantitative measures of the Bank's
assets, liabilities and certain off-balance sheet items as calculated under
regulatory accounting practices. The capital amounts and
classifications are also subject to judgments by the regulators about
components, risk-weightings and other factors.
22
LIBERTY BANCORP,
INC.
The Bank's
actual and required capital amounts and ratios at December 31, 2009 were as
follows:
Minimum
|
Required
|
|||||||||||||||||||||||
for
Capital
|
to
be "Well
|
|||||||||||||||||||||||
Actual
|
Adequacy
|
Capitalized"
|
||||||||||||||||||||||
Amount
|
Ratio
|
Amount
|
Ratio
|
Amount
|
Ratio
|
|||||||||||||||||||
(Dollars
in Thousands)
|
||||||||||||||||||||||||
Stockholders'
equity
|
$ | 41,966 | ||||||||||||||||||||||
Computer
software costs
|
(216 | ) | ||||||||||||||||||||||
Goodwill
and core deposit intangible
|
(2,011 | ) | ||||||||||||||||||||||
Unrecognized
gain, net on benefit plans
|
(54 | ) | ||||||||||||||||||||||
Unrealized
gain on securities AFS, net
|
(344 | ) | ||||||||||||||||||||||
Tangible
capital
|
$ | 39,341 | 9.8 | % | $ | 6,050 | 1.5 | % | ||||||||||||||||
General
valuation allowance
|
3,380 | |||||||||||||||||||||||
Total
capital to risk-weighted assets
|
$ | 42,721 | 13.1 | % | $ | 26,115 | 8.0 | % | $ | 32,644 | 10.0 | % | ||||||||||||
|
||||||||||||||||||||||||
Tier
1 capital to risk-weighted assets
|
$ | 39,341 | 12.1 | % | $ | 13,058 | 4.0 | % | $ | 19,587 | 6.0 | % | ||||||||||||
Tier
1 capital to total assets
|
$ | 39,341 | 9.8 | % | $ | 16,133 | 4.0 | % | $ | 20,167 | 5.0 | % |
Asset
Quality
The following table sets forth information with respect to the Bank's nonperforming loans at the dates indicated:
December
31,
|
September
30,
|
|||||||
2009
|
2009
|
|||||||
Nonaccrual
loans
|
$ | 2,688,065 | 67,123 | |||||
Accruing
loans past due 90 days or more
|
125,920 | - | ||||||
Impaired
loans
|
2,263,894 | 2,648,065 | ||||||
Troubled
debt restructuring
|
310,292 | - | ||||||
Total
nonperforming loans
|
5,388,171 | 2,715,188 | ||||||
Allowance
for losses on nonperforming loans
|
$ | 700,131 | 315,858 | |||||
Nonperforming
loans with no allowance for loan losses
|
$ | 125,920 | - | |||||
Average
balance of nonperforming loans
|
$ | 3,729,708 | 2,859,948 | |||||
Interest
income that would have been recognized
|
$ | 61,975 | 18,861 | |||||
Interest
income recognized
|
$ | 10,934 | 3,166 |
Nonaccrual
loans increased by $2.62 million due to the addition of seven single-family
properties.
On
occasion, the Bank originates single-family loans with high loan to value ratios
exceeding 90 percent. At December 31, 2009, these loans amounted to
$4.0 million.
23
LIBERTY BANCORP, INC.
At December 31, 2009, all loans where known information about possible credit problems of borrowers which caused management to have serious concerns as to the ability of the borrowers to comply with present loan repayment terms have been disclosed as nonaccrual, 90 days past due, or restructured.
Under our
internal review policy, loans classified as substandard increased from $12.0
million at September 30, 2009 to $13.8 million at December 31,
2009. Substandard loans were secured by two land development
properties, thirteen 1-4 family properties, five commercial real estate
properties, one mulit-family property, one church, two 1-4 family lots and one
commercial loan secured by all assets. Special mention loans
decreased from $6.4 million at September 30, 2009 to $6.2 million at December
31, 2009. Special mention loans consisted of three loans secured by
car hauling equipment and two loans secured by land for single-family
development. Foreclosed real estate, net decreased by $792,000 and
consists of four single-family lots, two single-family homes, two residential
development properties, two commercial lots and one commercial retail
property.
Following
is a summary of activity in the allowance for loan losses:
Three
Months Ended
|
||||||||
December
31,
|
||||||||
2009
|
2008
|
|||||||
Balance
at beginning of period
|
$ | 3,536,837 | $ | 2,633,298 | ||||
Charge-offs
|
(2,123 | ) | (331,157 | ) | ||||
Recoveries
|
29,689 | 1,769 | ||||||
Allowance
acquired by acquisition
|
- | 252,129 | ||||||
Provision
charged to expense
|
438,000 | 129,055 | ||||||
Balance
at end of period
|
$ | 4,002,403 | $ | 2,685,094 |
Results of Operations
Overview
Our
primary source of earnings before income taxes is net interest
income. Net interest income is the difference between interest
income, which is the income that we earn on our loans and securities, and
interest expense, which is the interest that we pay on our deposits and
borrowings. Other significant sources of earnings before income taxes
are service charges on deposit accounts.
Results of Operations for
the Three Months Ended December 31, 2009 and 2008
Selected
Financial Data
Three
Months Ended
|
||||||||||||
December
31,
|
||||||||||||
2009
|
2008
|
%
Change
|
||||||||||
Net
earnings
|
$ | 1,004,826 | 605,599 | 65.9 % | ||||||||
Return
on assets
|
1.01% | 0.67% | 50.7 | |||||||||
Return
on average stockholders' equity
|
9.12% | 5.54% | 64.6 | |||||||||
Stockholders'
equity-to-assets ratio
|
11.04% | 12.09% | (8.7) | |||||||||
Dividend
payout ratio
|
8.84% | 15.69% | (43.7) |
24
LIBERTY BANCORP,
INC.
Net
Earnings
Net
earnings increased from $606,000 for the three months ended December 31, 2008 to
$1.0 million for the three months ended December 31, 2009. Net
earnings increased due to higher net interest income and noninterest
income, partially offset by a higher provision for loan losses, higher
noninterest expense and higher income tax expense. Diluted
earnings per share increased from $0.16, based on 3.9 million average
outstanding diluted shares for the three months ended December 31, 2008 to $0.28
based on 3.6 million average outstanding diluted shares for the three
months ended December 31, 2009. The Company may acquire other bank
branches or facilities or sell assets based on their profitability and long-term
growth potential. Potential transactions are evaluated on an ongoing
basis, however no arrangements are currently pending.
Net
Interest Income
Net
interest income increased from $2.9 million for three months ended December 31,
2008 to $3.7 million for the three months ended December 31, 2009 due to a
higher interest rate spread, partially offset by a lower level of net
interest-earning assets. Our interest rate spread increased by 55
basis points, as compared to the three months ended December 31, 2008, as a
result of a significant decrease in the cost of deposits, partially offset
by an increase in the cost of FHLB advances. We originated
intermediate term FHLB advances in 2009 to replace short-term
advances due to declining rates for these terms which caused our
weighted-averaged duration and cost to increase as compared to the three months
ended December 31, 2008. The lower yield on interest-earnings assets
was attributable to lower yields on loans receivable, mortgage-backed securities
and securities. Our interest rate spread was 4.00% for the three
months ended December 31, 2009 and 3.45% for the three months ended December 31,
2008. The average yield on interest-earning assets decreased by 27 basis points
and the average cost of interest-bearing liabilities decreased by 82 basis
points for the three months ended December 31, 2009, as compared to the three
months ended December 31, 2008. Net interest-earning assets decreased slightly
for the three months ended December 31, 2009 due to the repurchase of common
stock. We have funded loan growth since December 2008 primarily
through an increase in deposits and through the sale, call and maturity of
securities and the sale and principal reduction of mortgage-backed securities,
partially offset by a decrease in FHLB advances.
Interest
income on loans receivable increased from $4.3 million for the three months
ended December 31, 2008 to $4.8 million for the comparable period in 2009. The
increase is attributable to a higher average balance, partially offset by a
slightly lower average yield. The higher average balance is due primarily to an
increase in commercial real estate loans, commercial loans and single and
multi-family loans, partially offset primarily by a decrease in residential and
nonresidential construction loans and consumer loans. Interest income
on mortgage-backed securities decreased due to a lower average balance and
average yield. Interest income on securities decreased from $332,000
to $202,000 due to a lower average balance and average yield.
Interest
expense on deposits decreased by $480,000 for the three months ended December
31, 2009 compared to the same period in 2008 as a result of a lower average
rate, partially offset by a higher average balance. The higher average balance
was due to higher balances for interest and noninterest checking, money market
accounts and long-term certificates, partially offset by a decrease in
short-term certificates. Interest-bearing checking accounts increased
by $16.7 milllion primarily due to an increase in governmental
accounts. The weighted-average rate on deposits decreased from 2.44%
for the three months ended December 31, 2008 to 1.40% for the comparable 2009
period. Interest expense on FHLB advances decreased by $18,000 for the
comparable three month periods due to a lower average balance, partially offset
by a higher average rate. Additional borrowing capacity as of
December 31, 2009 was $25.2 million.
Average Balances and
Yields
The
average balances and average yield\cost tables present information regarding
average balances of assets and liabilities, the total dollar amounts of interest
income and dividends from average interest-earning assets, the total dollar
amounts of interest expense on average interest-bearing liabilities, and the
resulting average yields and costs. The yields and costs for the
periods indicated are derived by dividing annualized income or expense by the
average balances of assets or liabilities, respectively, for the periods
presented. For purposes of these tables, average balances have been
calculated using month-end balances and, to a lesser extent, daily
balances. Management does not believe that the use of month-end
balances instead of daily average balances has caused any material differences
in the information presented. No tax equivalent adjustments were
made. Nonaccruing loans have been included in the tables as loans
carrying a zero yield.
25
LIBERTY BANCORP,
INC.
Three
Months Ended December 31,
|
||||||||||||||||||||||||
2009
|
2008
|
|||||||||||||||||||||||
Average
|
Average
|
|||||||||||||||||||||||
Average
|
Yield/
|
Average
|
Yield/
|
|||||||||||||||||||||
Balance
|
Interest
|
Cost
|
Balance
|
Interest
|
Cost
|
|||||||||||||||||||
(Dollars
in thousands)
|
||||||||||||||||||||||||
Interest-earning
assets:
|
||||||||||||||||||||||||
Loans
receivable
|
$ | 306,596 | $ | 4,768 | 6.22 | % | $ | 273,808 | $ | 4,308 | 6.29 | % | ||||||||||||
Mortgage-backed
securities
|
8,133 | 81 | 3.98 | 14,164 | 154 | 4.35 | ||||||||||||||||||
Securities
|
22,987 | 202 | 3.52 | 32,224 | 332 | 4.12 | ||||||||||||||||||
Other
interest-earning assets
|
22,047 | (1 | ) | - | 6,212 | 6 | 0.39 | |||||||||||||||||
Total
interest-earning assets
|
359,763 | 5,050 | 5.61 | 326,408 | 4,800 | 5.88 | ||||||||||||||||||
Interest-bearing
liabilities:
|
||||||||||||||||||||||||
Deposits
|
281,910 | 984 | 1.40 | 240,186 | 1,464 | 2.44 | ||||||||||||||||||
FHLB
advances
|
63,628 | 408 | 2.56 | 71,478 | 426 | 2.38 | ||||||||||||||||||
Securities
sold under agreement
|
||||||||||||||||||||||||
to
repurchase
|
651 | 4 | 2.67 | 677 | 9 | 5.31 | ||||||||||||||||||
Total
interest-bearing liabilities
|
$ | 346,189 | 1,396 | 1.61 | $ | 312,341 | 1,899 | 2.43 | ||||||||||||||||
Net
interest income before
|
||||||||||||||||||||||||
provision
for loan losses
|
$ | 3,654 | $ | 2,901 | ||||||||||||||||||||
Interest
rate spread
|
4.00 | % | 3.45 | % | ||||||||||||||||||||
Net
interest-earning assets
|
$ | 13,574 | $ | 14,067 | ||||||||||||||||||||
Net
yield on average
|
||||||||||||||||||||||||
interest-earning
assets
|
4.06 | % | 3.56 | % | ||||||||||||||||||||
Ratio
of average interest-earning
|
||||||||||||||||||||||||
assets
to average interest-
|
||||||||||||||||||||||||
bearing
liabilities
|
103.92 |
%
|
104.50 | % |
|
Provision
for Loan Losses
The
provision for loan losses is based upon management’s consideration of current
economic conditions, the loan portfolio composition and historical loss
experience, adjusted for qualitative factors, used to estimate probable losses
as well as the level of non-performing loans. Each month,
management also reviews individual loans for which full collectibility may not
be reasonably assured and considers, among other matters, the estimated fair
value of the underlying collateral. The loan review process is subjective and
relies on various assumptions, therefore actual results may differ
from current estimates. The Company and Bank are subject to periodic examination
by regulatory agencies, which may require us to record increases in the
allowances based on their evaluation.
26
LIBERTY BANCORP,
INC.
The
provision for loan losses was $438,000 and $129,000 for the three months ended
December 31, 2009 and 2008, respectively. For the three months ended
December 31, 2009, the provision of $438,000 was primarily due to an increase in
classified loans and an increase in provisions for losses for existing
classified loans, partially offset by a decrease in loans receivable and
recoveries. In addition, during the three months ended December 31,
2009 the experience loss ratio used to calculate the allowance for losses for
land and land development loans was adjusted upwards due to deteriorating
economic and business conditions related to these loans. The
allowance for loan losses as a percentage of total gross loans increased to
1.28% as of December 31, 2009, as compared to 1.13% as of September 30,
2009. Substandard loans increased by $1.8 million as of December 31,
2009 as compared to September 30, 2009 due primarily to the addition of three
nonresidential properties. Special mention loans decreased by $215,000 for
the three months ended December 31, 2009 when compared to September 30, 2009 due
to principal payments and the change in classification of one
single-family lot loan to substandard.
Noninterest
income
Three
Months Ended
|
||||||||||||
December
31,
|
||||||||||||
2009
|
2008
|
%
Change
|
||||||||||
Loan
service charges
|
$ | 35,219 | 21,499 | 63.8 % | ||||||||
Gain
on sale of loans
|
157,973 | 20,453 | 672.4 | |||||||||
Gain
on sale of securities available for sale
|
245,733 | 12,843 | 1,813.4 | |||||||||
Change
in cash surrender value of BOLI
|
109,417 | 109,580 | (0.1) | |||||||||
Deposit
account and other service charges
|
355,412 | 294,081 | 20.9 | |||||||||
$ | 903,754 | 458,456 | 97.1 |
Noninterest
income increased for the three months ended December 31, 2009 due primarily to
an increase in gains on sale of loans, gains on sale of securities and an
increase in deposit account service charges.
During the
three months ended December 31, 2009 and 2008, we originated loans for sale to
secondary market investors of $8.1 million and $2.3 million,
respectively. We have hired four additional mortgage loan originators
and increased our marketing efforts since December 2008 in order to increase our
market share. The level of gains on sale of loans in the immediate
future will be dependent on interest rates and prevailing economic
conditions.
Noninterest
Expense
Three
Months Ended
|
||||||||||||
December
31,
|
||||||||||||
2009
|
2008
|
%
Change
|
||||||||||
Compensation
and benefits
|
$ | 1,401,593 | 1,179,922 | 18.8 % | ||||||||
Occupancy
expense
|
202,904 | 184,354 | 10.1 | |||||||||
Equipment
and data processing expense
|
317,742 | 283,430 | 12.1 | |||||||||
Operations
from foreclosed real estate, net
|
44,422 | 175,681 | (74.7) | |||||||||
FDIC
premium expense
|
85,295 | 62,000 | 37.6 | |||||||||
Professional
and regulatory services
|
126,774 | 119,937 | 5.7 | |||||||||
Advertising
|
131,301 | 66,939 | 96.2 | |||||||||
Correspondent
banking charges
|
24,676 | 33,362 | (26.0) | |||||||||
Supplies
|
34,687 | 58,107 | (40.3) | |||||||||
Amortization
of core deposit intangible
|
45,167 | 34,666 | 30.3 | |||||||||
Other
|
224,192 | 190,827 | 17.5 | |||||||||
$ | 2,638,753 | 2,389,225 | 10.4 |
27
LIBERTY BANCORP,
INC.
Noninterest
expense increased from $2.4 million for the three months ended December 31, 2008
to $2.6 million for the comparable period in 2009. Compensation and
benefits expense increased due primarily to higher salary levels related to
merit increases and incentive-based compensation, additional branches and higher
payroll taxes. Occupancy expense increased due primarily to higher
building depreciation expense, higher personal property taxes, higher
building maintenance expenses and higher utility expense, partially offset by
higher office rental income at one branch location. Equipment and data
processing expense increased due primarily to higher service agreement expense,
web site expense and higher computer and furniture depreciation expense in
connection with new branch offices, partially offset by lower maintenance
expense. FDIC premium expense increased due to an increase in the
regular quarterly assessment. The FDIC may impose additional special
assessments, if warranted. Expenses from operations from foreclosed real
estate, net decreased due to lower losses on the sale of foreclosed real estate
and lower maintenance expenses, partially offset by lower rental
income. Advertising expense increased due to an increase in marketing
expenses related to our mortgage loan department, partially offset by lower
miscellaneous marketing expenses. Correspondent banking expense
decreased due to performing certain check processing and statement rendering
service operations in-house which reduced outside vendor expense. Supplies
expense decreased due to no additional branch growth. Amortization of
core deposit intangible related to the acquisition increased due to one entire
quarter of amortization as compared to a partial quarter for the quarter-ended
December 31, 2008. Other expenses increased due primarily to an
increase in mortgage loan expense, stock administration expense and telephone
and data line expense, partially offset by primarily lower retail operations
expense, non-origination loan expense and property insurance
expense.
Income
Taxes
Income
taxes increased for the three months ended December 31, 2009 due primarily to
higher pretax earnings. The effective rate for the three months ended
December 31, 2009 was 32.1%, compared to 28.0% for the three months ended
December 31, 2008. The effective tax rate increased due to a decrease
in non-taxable municipal bond income.
Off-Balance Sheet Arrangements
In the
normal course of operations, we engage in a variety of financial transactions
that, in accordance with U.S. generally accepted accounting principles, are not
recorded in our financial statements. These transactions involve, to
varying degrees, elements of credit, interest rate and liquidity
risk. Such transactions are used primarily to manage customers’
requests for funding and take the form of loan commitments and lines of
credit. We currently have no plans to engage in hedging activities in
the future.
Not
required for smaller reporting companies. See the Company's Form
10-K for the year ended September 30, 2009 filed with the Securities and
Exchange Commission on December 22, 2009 for discussion of interest rate risk at
September 30, 2009.
Item 4
(T). Controls and Procedures
As of the
end of the period covered by this report, the Company carried out an evaluation,
under the supervision and with the participation of the Company’s principal
executive officer and principal financial officer, of the effectiveness of the
design and operation of the Company’s “disclosure controls and procedures,” as
such term is defined in Rule 13a-15(e) promulgated under the Securities Exchange
Act of 1934, as amended (the “Exchange Act”). Based on this
evaluation, the Company’s principal executive officer and principal financial
officer concluded that the Company’s disclosure controls and procedures were
effective for the purpose of ensuring that information required to be disclosed
by the Company in reports that it files or submits under the Exchange Act (1) is
recorded, processed, summarized and reported, within the time periods specified
in the Securities and Exchange Commission’s rules and forms and (2) is
accumulated and communicated to the Company’s management, including its
principal executive and principal financial officers, as appropriate to allow
timely decisions regarding required disclosure.
28
LIBERTY BANCORP,
INC.
There have been no changes in the Company’s internal control over financial reporting during the most recent fiscal quarter that have materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item
1 - Legal Proceedings
Periodically,
there have been various claims and lawsuits against us, such as claims to
enforce liens, condemnation proceedings on properties in which
we hold security interests, claims involving the making and servicing of real
property loans and other issues incident to our business. We are not
a party to any pending legal proceedings that we believe would have a material
adverse effect on our financial condition, results of operations or cash
flows.
Item
1A – Risk Factors
Not
required for smaller reporting companies. See the Company’s Form 10-K
for the fiscal year ended September 30, 2009 filed with the Securities and
Exchange Commission on December 22, 2009 for discussion of risk factors at
September 30, 2009.
Item
2 – Unregistered Sales of Equity Securities and Use of
Proceeds
The
following table provides information regarding the Company’s purchases of its
equity securities during the three months ended December 31, 2009.
ISSUER
PURCHASES OF EQUITY SECURITIES
|
||||||||
(a)
|
(b)
|
(c)
|
(d)
|
|||||
Total
Number
|
Average
Price
|
Total
Number of
|
Maximum
Number
|
|||||
of
Shares
|
Paid
per
|
Shares
(or Units)
|
(or
Approximate
|
|||||
(or
Units)
|
Share
|
Purchased
as
|
Dollar
Value) of
|
|||||
Purchased
|
(or
unit)
|
Part
of Publicly
|
Shares
(or Units)
|
|||||
Announced
Plans
|
That
May Yet Be
|
|||||||
or
Programs
|
Purchased
Under the
|
|||||||
Period
|
Plans
or Programs (1)
|
|||||||
October
1, 2009
|
||||||||
through
October 31, 2009
|
-
|
$
|
-
|
-
|
332,037
|
|||
November
1, 2009
|
||||||||
through
November 30, 2009
|
6,957
|
$
|
14.05
|
6,957
|
325,080
|
|||
December
1, 2009
|
||||||||
through
December 31, 2009
|
5,108
|
$
|
7.54
|
5,108
|
319,972
|
|||
Total
|
12,065
|
$
|
11.29
|
12,065
|
(1)
|
On
May 21, 2009 a fourth stock repurchase program was approved to acquire up
to 365,537, or 10%, of the Company’s outstanding stock. The
first three repurchase plans have been completed. Repurchased
shares are held in treasury.
|
29
LIBERTY BANCORP,
INC.
Not
applicable.
Item
4 – Submission of Matters to a Vote of Security Holders
None.
Item
5 - Other Information
None.
Item
6 – Exhibits
None.
30
LIBERTY BANCORP,
INC.
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
LIBERTY BANCORP, INC. | |||
(Registrant) | |||
DATE:
February 12,
2010
|
BY:
|
/s/ Brent M. Giles | |
Brent
M. Giles, President and Chief Executive Officer
|
|||
(Principal
Executive Officer)
|
|||
|
BY:
|
/s/ Marc J. Weishaar | |
Marc
J. Weishaar, Senior Vice President and Chief
|
|||
Financial
Officer
|
|||
(Principal Financial Officer) |